Last week, a businessman who had just returned from Hong Kong delivered to The Chronicle two ordinary-looking CD-ROMs that might as well be called "Software's Greatest Hits." With more than 100 titles, the disks are packed with nearly $50,000 worth of software (Windows 95, Windows NT, AutoCad, Lotus Notes, Xing's Mpeg, and so on).

The price: about $70 from a Hong Kong street vendor. He sold them from a cart that looked more like a hot-dog stand to passers-by. The CDs were manufactured in southern China, the mecca for making pirated software.

Pirated software costs high-tech companies, many of them in Silicon Valley, an estimated $12 billion annually worldwide. It threatens both jobs and economic growth.

That's why software piracy is on the front burner of trade topics; just like Japanese auto imports and Canadian lumber dumping have been in the past.

"We're the only industry in the world that empowers every customer to become a manufacturing subsidiary," said Ken Wasch, president of the Software Publishers Association in Washington, D.C., whose 1,200 members account for 90 percent of the sales of U.S. packaged software. "Anyone can make a perfect copy with the touch of a few keys."

In one case, a Bay Area software pirate was found holed up with a shrink- wrap machine in his living room, said Lee Altschuler, chief of the U.S. Attorney's office in San Jose.

The Clinton administration has targeted China as the biggest software copycat, and this week it plans to announce retaliatory action against more than $2 billion in Chinese imports.

Chinese officials say the charges are exaggerated, and are threatening counter-sanctions against the United States.

But the software makers are undeterred. "The losses due to software piracy in China are staggering, and they are growing every day," said Bob

An estimated 98 percent of the software in use in China is pirated, according to U.S. software makers. This year the country is expected to produce 200 million copies of compact discs and CD-ROMs.

The pirated software is churned out at dozens of factories located throughout southern China, according to people who have visited the facilities. They are exported on circuitous routes (Turkey now is a hub, customs' officials say) to Western countries.

China is not the only culprit. More than 90 percent of the software in existence in Turkey, Thailand, Indonesia, Russia, Guatamala, Honduras, El Salvador, and the United Arab Emirates is illegal, according to industry watchdog Software Publishers Association.

The figure stands at around 25 percent in the United States, down from more than 50 percent three years ago, according to Wasch.

Software watchdogs and law- enforcement officials credit the decrease to legal crackdowns and an education campaign.

The Software Publishers Association goes to unusual lengths, including creating rap songs that are distributed to schools: "Did I hear you right, did I hear you saying, that you're going to make a copy of a game without paying! Come on guys, I thought you knew better! Don't copy, don't copy that floppy!"

Yesterday, the association held a course on software piracy, dubbed Certified Software Manager, in San Francisco. It already has been held in major cities throughout the world, and the trade group also has distributed educational videos to companies and schools.

The SPA took action against 586 organizations in the United States last year, up 23 percent from 1994. Most cases are settled out of court, with companies agreeing to do a software audit to see if any illegal software is being used by employees. Six of the settlements also included payments exceeding $100,000.

Aware of the liability, many big companies already have taken steps to stomp out piracy. "Chevron could be liable if you make illegal copies of software," the San Francisco oil giant said in a recent memo to department heads. "I strongly urge each of you to audit the software on your system and ensure you are not violating any copyrights."

Pacific Bell has a similar program in place. To deter piracy, many software manufacturers, including San Jose-based Cisco Systems, require customers to use a secret password when downloading software.

Law-enforcement officers also are turning up the heat. Last month, federal authorities arrested San Francisco resident Lawrence Warmate, charging that he sold more than $125,000 in bogus software since 1984.

"Each civil lawsuit or criminal prosecution highlights the risk of piracy and deters some number of would-be pirates," Altschuler said.